What changes are there to lending due to Covid-19?
Banks have made significant short term changes to their lending assessment criteria in the wake of the Coronavirus outbreak. This will have an impact upon you if you currently have preapproval for a home loan or are seeking finance to get into the home market.
Lenders are particularly focussed on borrowers who are working in what are considered to be high risk industries such as tourism, retail or hospitality. While each application is assessed on a case by case basis,workers in these industries will find it very difficult to obtain finance unless they can prove that their income has not been and will not be affected. Additionally borrowers in these categories will find Lenders Mortgage Insurance (LMI) providers reluctant to support their application. LMI is generally required for borrowings that exceed 80% of the purchase price.
Most lenders are not currently assessing casual income given the uncertainty of casual employment. Similarly, “additional income” in the form of bonuses, commissions, overtime and allowances while still being accepted are being shaded significantly. In most cases, the amount of non-base income being accepted has been reduced from 80% to 50%.
Self employed applicants who have already obtained approval will find that they may have to supply up to date BAS statements to support Financial statements for the previous two years.
Some lenders are now doing employment checks prior to approving settlement. In the event that changes have occurred, the lender may delay settlement in order to reassess the application and may remove approval altogether.
It is important to remember that these changes are short term changes in response to a very specific set of circumstances. If you are seeking housing finance at this time, it may be prudent to seek the assistance of Australian Finance Hub who will be able to find the most appropriate source of finance for you.